Biotech on a Shoestring: How Companies Are Pinching Pennies in the “New Reality”

7/21/10Follow @xconomy

Just in case startups thought they were insulated from the Wall Street implosion of September 2008, Sequoia Capital let there be no doubt that the ripple effect was being felt. Sequoia famously held an emergency meeting with its portfolio companies in October 2008, complete with a mock tombstone with the message “RIP: Good Times.”

The era of free-spending was supposedly out, and austerity was the watchword. A few outliers started experimenting with the idea of “garage biotech” companies that buy cheap equipment on eBay to help wean themselves off venture capital on a quest to profitability. But for the vast majority of venture-backed biotech, digging into exactly what changed in the budget is hard to pin down. If you’re suddenly flaunting the idea that you’ve become a tightwad with investors’ money, then what were you doing with it before?

This whole notion of frugality, stinginess, or whatever you want to call it, came back on my radar earlier this week during an interview with Meenu Chhabra, the CEO of Seattle-based Allozyne. She outlined a lot of scientific progress her company has made in the past year in stealth mode, while she was flying coach, forbidding most travel to conferences, feeding her board of directors with box lunches, and refusing to hire any senior management besides herself and her chief scientist.

This got me thinking about what really constitutes the “new reality” of spending in the biotech drug development business. So I pressed Carl Weissman, the CEO of Seattle-based Accelerator, to walk me through specific examples of what spending habits were like in the old days (pre-September 2008), and how belts have been tightened in the post-Lehman era. (For the record, Weissman has been consistent in these pages about how Accelerator has always been parsimonious with its money, by industry standards.)

So, with that, I thought it would be fun to put together a little chart to juxtapose the old spending habits versus the new ones Weissman has observed. If you have any other specific examples you’d like to add, shoot me a note at ltimmerman@xconomy.com.

“Old Reality” “New Reality”
1. VCs fly in the night before a board meeting, stay in nice hotel, eat dinner as a group at a fancy restaurant, attend board meeting the next day, fly back at night. Full bill goes to portfolio company. VCs fly in the morning, and attend the board meeting mid-day. Portfolio company provides box lunch, and directors fly home that evening. No overnight hotel stay, no fancy dinner.
2. In San Diego, stay at the Lodge at Torrey Pines. In Seattle, the Fairmont Olympic Hotel. In San Diego, stay at the Sheraton La Jolla. In Seattle, Silver Cloud Inn.
3. When flying to the East Coast, go first class. Economy ticket, and try for upgrade
4. Business class flights to Europe and Asia. Discounted business class. Or, coach.
5. Scientists attend conferences once a quarter. Pick one conference per year.
6. Each scientist hires two research assistants. Wash your own dishes.
7. Pay salaries for a chief financial officer, a vice president or higher-level executive of business development, an operations chief, and a VP of HR. Consultants.
8. Company-sponsored happy hour on Friday. Go out on your own.
9. Free food, soda, beer in company fridge. Coffee and tea provided.
10. New luxury sedans for top execs every year. Hold onto the Honda another year.

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  • Len Williams

    Yes, VCs seem to be more selective and there are fewer deals,biotech started to decline in the first quarter of 2009. But companies that survived the financial meltdown are likely to perform well this year.I think there will still be a venture capital focus on biotechnology. However,for many companies the funding environment will be a challenging one for the future.

  • Ajamete Kaykas

    Yes, and then there are those that are still living an “altered reality” where 2009 never happened and they continue to grow fat off the VC hand, without ever doing any “science” or moving anything ahead..I applaud the real shoe string companies that are literally doing it on pennies out of garages or their kitchens…

  • http://www.lymanbiopharma.com Stewart Lyman

    Funny, but my experience in biotech always looked like the “new reality” during my 1988-2002 tenure at Immunex. The only way I went to more than one meeting a year was if the sponsoring organization paid my way. I never flew first class or business class on the company’s dime, and felt lucky to have hot chocolate packets in addition to the coffee and tea at the break station. I finally got rid of my 1985 Corolla in 1999. While I cleaned up after my experiments, I never prepped my own media as the organization understood the value of supporting our scientific focus and mission. Scientists concentrated on getting their science done with as few constraints as practical. Reality is what you make it and is as much a mindset as it is a financial condition. Those with a sense of entitlement will always think of themselves as living in the “old reality” no matter what the circumstances.

  • steve speer

    Yes, it is wise to spend less to get to the same endpoint/outcome (I do that every time I go to the grocery store)…real savings though come from running an efficient organization that continually seeks to reduce or eliminate waste…problem is, waste is hard to see especially when it is not a conscious focus…companies could more than afford the perks they are used to if they reaped the dollars they waste on their inefficiencies.

  • http://TeamBiopharma.com Janet Rose Rea

    Having been around the scene for over 30 years, I’d like to add some more:

    Old Reality:
    An administrative assistant for one to four Directors; one for each C-level.

    New Reality:
    One administrative assistant per company. And don’t call that person a secretary.

    Old Reality:
    Draft your letter – your admin would fix it, print it out on letterhead, file it, (and find it later on) and send it out. And fix the copier, add paper, replace the laser cartridge and fix jams.

    New Reality:
    Do it yourself. And know how to use a scanner, fax machine, add paper and replace the laser cartridge, file it and be able to find it.

    Old Reality:
    Admin screens calls – gets rid of people for you.

    New Reality: Know your phone – use caller ID and send calls to v-mail.

    Old Reality:
    Subscriptions to WSJ, Pink Sheet, etc., for “key people.”

    New Reality:
    One subscription/company – located in the lunchroom to be shared. Price: at a reduced rate or free.

    Old Reality:
    Everyone kept their own work on their desktop

    New Reality:
    Nightly backups with integration to preserve corporate intelligence and to make sure everyone is working from the same page.

    Old Reality:
    Microsoft WORD® knows grammar better than you.

    New Reality:
    Maybe not. You had better know the rules, like verb and noun agreement especially with prepositional phrases. Punctuation and spelling, too.

  • Bay Area Biotechie

    I agree with Stewart. I think the “old reality” as described probably applied only to the old ZymoGenetics culture and not to any other startup company. The “new reality” has been around for awhile with the exception of item 6. It doesn’t make sense to pay scientist to wash dishes when you can hire someone for $8/hr to do that even in today’s economy.

    Here are some “new, new reality” items that are not on your list:

    1. As scientists or managers leave the company do not replace them but move responsibility to other employees.
    2. Transfer increased health benefit costs to the employee through increased medical and dental insurance payroll contributions.
    3. Eliminate annual raises and reduce benefits further where allowed by law
    4. Sublease any extra space to interested parties if possible
    5. Aggressively outsource manufacturing and testing to the lowest cost provider and accept more risk in development
    6. Aggressively negotiate pricing from suppliers such as VWR and Fisher and make do without if possible.